Snippets about: Investing
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Skilled Gambling Is Still Gambling
The story of options trader Runbo Li illustrates how even sophisticated financial instruments can enable gambling-like behavior. Li initially made huge profits trading Nvidia stock options based on a tip from Reddit's r/wallstreetbets. However, he gave back all his gains and more when his subsequent Nvidia options trades went sour.
Though options trading requires significant skill, Li came to see it as more akin to gambling than he wanted to admit. The r/wallstreetbets forum encouraged risky bets by mostly inexperienced traders. Meanwhile, brokers like Robinhood turned options trading into an addictive gamified experience.
The myth that skillful trading could lead to easy fortunes drew Li into a destructive cycle of high-risk, high-stakes betting. He failed to recognize that even seemingly expert-recommended trades amounted to gambling with extra steps.
Section: 2, Chapter: 6
Book: On The Edge
Author: Nate Silver
Venture Capital's Two Essential Traits - Long Time Horizon and Asymmetric Payoffs
Venture capital is a unique enterprise defined by two key characteristics:
- Very long time horizon: VCs make few decisions but live with the consequences for many years. For example, Sequoia Capital invested in Google in 1999 and still owns most of that stake nearly 25 years later.
- Asymmetric payoffs that reward big bets: While VCs can lose at most 1x their investment, the upside can be 1000x or more. Missing out on the next Google is costlier than the downside of failed investments.
This combination of patience and upside-skewed bets enables VCs to invest in bold ideas that most industries would consider too speculative.
Section: 2, Chapter: 5
Book: On The Edge
Author: Nate Silver
Treasury Bonds Provide Ultimate in FI Security
Treasury bonds are the safest investment for your FI capital, offering:
- Guaranteed return of principal and interest by U.S. government
- Stable, predictable income you can calculate in advance
- Highest level of liquidity - easy to cash in if needed
- No commissions or fees if bought directly from Treasury
- Wide range of maturity dates to create an income "ladder"
The authors advise putting your core FI money in Treasuries before any other investment. You can count on them to deliver a steady income with no surprises.
Section: 1, Chapter: 9
Book: Your Money or Your Life
Author: Joe Dominguez, Vicki Robin
Putting Your Values Where Your Treasure Is with Ethical Investing
Many FIers want their money to do no harm and maybe even do some good. Socially responsible investing (SRI) lets you put your capital in companies screened for ethical practices such as:
- Environmental sustainability
- Fair treatment of workers
- Avoidance of "sin" products like tobacco, weapons or gambling
- Diversity in hiring and leadership
- Transparent, honest business practices
SRI mutual funds abound with various mixes of screens. Look for low fees, strong returns and standards that match your values. Many aim to balance making a difference with making a profit.
Section: 1, Chapter: 9
Book: Your Money or Your Life
Author: Joe Dominguez, Vicki Robin
The Meme Creation of Value
The 2020-21 bubble featured asset valuations completely detached from underlying fundamentals, driven by "meme creation of value." Online communities realized they could send prices soaring by coordinating to buy the same assets, even if they had little intrinsic worth. Examples include:
- GameStop stock rising from under $1B to $22B market cap in a month despite no change in business prospects, popularized on Reddit's r/wallstreetbets
- Dogecoin, a joke cryptocurrency, rising 3000x in value, fueled by the same online investor groups and Elon Musk
- This turned investing into a self-fulfilling social game - buy assets and convince others to follow suit, hoping to sell before the bubble bursts. The leaderless, decentralized nature of online communities amplified this dynamic.
Section: 2, Chapter: 6
Book: On The Edge
Author: Nate Silver
